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Technology Stocks : IBM -- Ignore unavailable to you. Want to Upgrade?

To: Elwood P. Dowd who wrote (4502)	1/21/1999 10:28:00 PM
From: Sonki	Read Replies (1) \| Respond to of 8218

I saw the break down in IBM revenues. Server sales was the best part of the revenue. following from briefing: not that i agree w. briefing but i like to understand what is it about IBM besides the ceo that the street likes? --------------------------------- briefing ------------- INTERNATIONAL BUSINESS MACHINES (IBM) 197 +2 1/2. We've said it before, and we'll say it again: Gerstner is better at managing his stock price than his company. After the close Thursday, IBM reported a fourth quarter profit of $2.47 per share. That was two cents above the First Call average forecast, and up from the year-ago operating profit of $2.11 per share. The best angle on the report is that profits were up 17% on a per share basis from the prior year. The worst is that revenues rose a paltry 6%. And, since IBM is fond of pointing out "constant currency" revenue changes when exchange rates reduce the reported revenue gain, it should be noted that revenues were up only 5% when adjusted for exchange rate movements. That is less than half the growth rate of 11% in revenues (excluding exchange rate impacts) that IBM posted last quarter. So, sales slowed down sharply. And, Briefing.com is not impressed with where the growth is coming from. CEO Lou Gerstner said that 60% of profits now come from services and software. However, services revenue rose 19%, while software revenue grew only 8%. Hardware sales fell 2%. The problem is that service revenue is typically valued at lower multiples by the market, as it is less of a long-term growth industry than software or hardware. IBM is not Microsoft or Dell. Yet, the market has greatly increased the multiple on IBM stock. The stock is up 64% from 120 a couple of weeks ahead of their previous earnings report in October. It now trades at 30 times trailing earnings. That is extremely high for a company that really isn't growing much, particularly in its core hardware business or in software. It is also much higher than the P/E IBM has traditionally received. Now, don't get us wrong. IBM is doing many things well and the company is well managed. But, it is hard to understand why the stock is up 64% in three months when sales have actually slowed down. This is not a growth company, but the services category, but we have learned not to be surprised by the stock has been acting that way. In fact, the stock is up 17 points the past five trading days as whisper numbers were for a blow-out report. This doesn't qualify, and the stock was 6 points lower in after-hours trading. Briefing.com feels that IBM is overvalued at this level, but we also recognize that the market has come to love IBM once again. Gerstner is likely to make some positive comments about the business prospects, and the analysts love him. He may even decide to come up with the much anticipated, but not yet announced, stock split if the stock starts to fall. Briefing.com is not at all impressed by 5% revenue growth, especially as it is mostly in the willingness of the market to see the best in Lou Gerstner and IBM.